Kramer’s “No. 1 Value Stock for 2018”

Value Authority hints that, "With 217% earnings growth and a 12 P/E, this is one stock that’s set to soar"

By Travis Johnson, Stock Gumshoe, March 18, 2018


This article originally ran on January 29, but must be circulating again in March because we’re getting questions from readers — so we re-share it with you today.

In case you’re wondering, this “value” stock is now about 25% lower than it was when this article first hit our pages (and the ad first hit my inbox), thanks to low comparable store sales and a weak forecast from the company when they released earnings a couple weeks ago. So… if you thought it was a value at $63, you might be extra-enthused with it at $46. The forward PE is now down just a whisker below 10. I haven’t looked at the latest financials or the quarterly update in any detail.

So, without further ado, our article and comments from back in January:

–from 1/29/18–

I don’t think I’ve covered a Hilary Kramer pitch recently, the last one that really got the attention of Gumshoe readers was her endless promotion of GW Pharmaceuticals (GWPH) as the “Microsoft of Medical Marijuana”… but now she’s out with some ads touting value stocks and her newer advisory called Value Authority, which I’ve never seen advertised before, so we’re going to jump on that and see what we can find.

(She does, incidentally, still like GWPH.)

So what is this “Number 1 Value stock for 2018” that she’s trumpeting now? One of the great benefits of having multiple newsletters with different focus is that you get to be right almost no matter what, so we should take with some bit of skepticism her big picture prognostications (as, of course, you should be skeptical of mine) — but, prepared to be skeptical, this is what she says:

“… let me explain why 2018 will be a great year for our value stocks.

“With the stock market at all-time highs, stocks have rarely been this expensive. According to Goldman Sachs, stocks have been more expensive only 11% of the time over the past 40 years.

“It’s no wonder.

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“In just 12 months the Dow has jumped from 19,827 to over 26,000—the fastest rise on record!

“With unemployment at just 4.2%, inflation virtually nonexistent, and the U.S. tax cuts about to put billions of dollars back into American wallets and corporate coffers, the market has even more room to grow, too.

“But the big money won’t be made in growth stocks; instead, it will be in a number of select value plays.”

“Value” and “Growth” are overused terms that don’t necessarily mean anything — but in common investor parlance we usually think of value stocks as being companies that are valued primarily based on their actual assets and current earnings power, and often trading at below-average valuations based on those numbers — and of growth stocks as being companies that are valued primarily based on how much growth investors see in their future, how much we anticipate those earnings growing in the next few years, while they trade at a premium valuation to the market based on their current earnings or assets.

There’s no hard and fast rule about what “value” means, and you could easily come up with a few stocks that the value and growth camps both claim as their own, but, well, we’re human beings and we like to categorize things and take sides, so step up, place your bets! Who’s gonna win, value or growth?!

But anyway, what we’re interested in is Kramer’s pitch about her favorite value stock… which, we’re told, is trading at a super-cheap valuation and also growing like crazy. Here are the clues we get:

“Why My No. 1 Value Stock Could Triple Weight Watchers’ 389% Gains Last Year

“Just like Weight Watchers, this company is also riding the wave of unstoppable earnings growth.

“But unlike Weight Watchers, which profits in the diet sector, this company is making money hand over fist in the discount retail sector.

“This is why the world’s biggest institutional investors have been adding it to their holdings—and for one good reason.

“The retail apocalypse has been very, very good for it.”

She goes on to note that discounters are not suffering to the same extent as department stores when it comes to the “retail apocalypse”, and that’s generally true… the dollar stores and convenience stores and even fashion discounters have been leading the charge when it comes to store openings and excitement in retail, even as the far larger JC Penneys and Sears stores get shuttered.

So that makes it easier to get space, presumably — more clues:

“… the company opened 140 stores last year while moving its poorer performers to better locations….

“… the stock is zooming past all of the indexes—up 22% in the past six months—not only beating the indexes by as much as 70% but also beating the FANG stocks (Facebook, Apple, Netflix, and Google) by as much as 100%!”

Those are relative numbers, which we should always be careful of — all she’s saying is that this stock has gone up twice as fast as at least one of the FANG stocks over the past six months. The weakest FANG stock has been Facebook of late, so that just means that this stock has gone up by more than twice FB’s 9% return over the past six months. 22% is not bad performance for six months, but there are a lot of stocks that have done “70% better” than any given index over that particular time period (and yes, this “secret” stock is now up about 26% over the past six months, which is about 70% higher than the S&P’s 15% return over that time period).

But anyway, who is this bugger? Any other clues? She tells usa bout the earnings growth and the PE, which sound impressive:

“With 217% earnings growth and a 12 P/E, this is one stock that’s set to soar”

And we get lots of hints about the top institutional owners, which doesn’t usually mean anything (almost all stocks are dominated, in their ownership lists, by indexers like Blackrock and Vanguard, so we shouldn’t usually assume that those institutional investors are making qualitative assessments of this specific company), but it does help us to confirm the Thinkolator’s results… so as we note that Blackrock reportedly owns 12.23% of this company, and Vanguard 11.57%, we can confirm that yes, this “secret” stock is Big Lots (BIG).

Big Lots is a discount retailer, with relatively large stores compared to discounters like Dollar Tree or Dollar General, perhaps because they focus on housewares (furniture takes up more room than toothbrushes and toys). Our local Big Lots is next to our Local Wal-Mart, and the two are roughly equally depressing to visit (dingy, confusing, low quality junk, friendly but inadequate staff, etc), but that doesn’t mean much — it’s a dingy time of year here in the northern tundra of New England, none of us are looking our best at the moment.

Big Lots has actually been on a decline lately when it comes to store count, so presumably they overbuilt and had to pull back a bit… the past several years have all seen net reductions in store count, so Big Lots is now back to 1,430 stores as of the September quarter, the lowest number since 2011. The operating numbers have also generally trended downward or been stagnant for much of the past six years, though the past year and a half or so have been on the upswing, and the reduction in share count has helped the stock and the per-share numbers.

The 200% growth numbers shouldn’t cloud your mind too much, but analysts do see earnings growth coming — and with a relatively decent valuation, that might be enough. They are cheaper than the most similar peers like Dollar Tree and Dollar General, though they’re also performing a bit worse when it comes to growth on a per-store basis. They should also be a significant beneficiary of the federal tax cuts, since they pay a high tax rate (about 36% over the past four quarters), so that could help considerably and boost earnings by as much as 30-40% if they get the full benefit of the tax cut (they probably won’t, there are lots of other numbers that go into that — but analysts have been raising estimates for next year). And, perhaps as important as anything else, they’ve been beating analyst estimates — though since this is a retailer, their next quarter (ending on Wednesday, will be reported in early March) will be the key because that holiday period represents well over half of their annual sales and earnings.

Right now, BIG trades at a trailing PE of about 16 and a forward PE of 13, with a $1/share annual dividend that provides a yield of about 1.5% (and they have been growing the dividend, which is a good sign, so dividends and buybacks may be the meat of shareholder returns if they don’t accelerate their top line somehow). Analysts are expecting 16% earnings growth for the next five years, on average, but we should probably take that with a bit of skepticism, if only because the company has had an average drop in earnings of about 17% over the past five years. If you want to buy this one, make sure you get to know their strategy and their focus and get comfortable with the plan, because they are going through some strategic changes, it appears, in a very competitive market, and it might be a bumpy ride –so you could easily get bumped off if you aren’t sure why you were on the ride in the first place. If the analysts are right, then paying 13X forward earnings for a company growing earnings in the mid-teens is certainly a “value” stock by most metrics, and a pretty easy one to argue in favor of — assuming you have some confidence in that growth and in their business plan.

You can see their latest conference call transcript here, if you’re curious, and the press release here. The company is in the midst of refocusing its strategy a bit, including opening its “store of the future” that focuses more on some higher margin and more “winnable” businesses. The CEO also went on medical leave last month following a hospitalization, so I have no idea whether or not that will end up being a big deal (usually it isn’t, in my experience).

I haven’t seen any confirmation that they opened 140 stores last year, though that’s possible (though they’ve not opened that many in a single year in the past decade… they opened 9 in 2016, but also closed 26… so the net store count still dropped, and as of the third quarter the reported footprint of 1,430 stores was two stores lower than at the end of 2016). It is a company that already has a national presence, including several regional distribution centers that cover much of the country pretty well, so there’s no reason they can’t open more stores if they see opportunity — their store count is pretty similar to a company like TJ Maxx, but is far, far lower than the deeper discounters like Family Dollar or Dollar Tree, which are a bit smaller but have 5-10X more locations than Big Lots.

And that’s all I know about Big Lots. Think it’s a value? Think it’s a dud? Feel free to chime in with your own thoughts with a comment below.


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J ohn
J ohn
Guest
February 4, 2018 12:50 pm

I’m very curious. Most all of the investment letter I read talk about how good stock buybacks are and I assume they mean “for the shareholder”.Especially those nuy backs that are done with borrowed cash. Any buy back creates a temporary condition, it does not increase the real earnings. I know it increases the earning per share and the stock price but what does that matter unless you are a seller. Regarding dividend, all companies I know of price their dividend on a dollar basis not a percentage basis. Ths means the company has less shares outstanding and consequently they are paying out less cash. Why not increase the dividend payout with special dividends.This method would not lock-in higher dividend expectation in the following periods. Alternative, if the company does have extra cash, a novel idea; spend that cash to reduce debt before the interest rates start to kill them. Rates won’t stay at 1 – 3 % forever. Or as a final real alternative, expand the business, buy out the competition.
Also we know that the officers and management receive options and many times these buybacke are actually officer and management crossing their options into the buyback. Have there been any studies of how much from buy back goes back to management.
SO PLEASE, someone tell us who really profits from buybacks

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Salamander
Salamander
Member
February 5, 2018 6:10 am

Although not relevant to BIG perhaps some insight into the “perpetrator ” of the missive might colour some people’s thoughts about buying into her ideas. She seems to think that GWPH is really going places. I had the same idea some years ago when GWPH were trading on the UK market. I bought in at a very low price, bought and sold a few times on falls and rises and made some useful money. Hey-ho they were the days. Not long ago I sold off all my holding as I felt that the best times had gone. With the advent of cannabis legalisation some of GWPH’s benefits seem to be reducing, despite this she still looks for big gains. Still want to follow her?

MCGILTON98846
February 6, 2018 9:12 pm

Thinking of 2018 Trade of The Year 1000%outperformance,up 38%in last year,Tech Stock, Provider to TESLA&Alde?

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El G
Irregular
February 7, 2018 7:17 pm

BIG is one of the stocks listed in the daily stocks of local interest summary in our paper. We have a couple of stores in the area. Year after year it has posted impressive gains. I recently bought a small stake and of course the price immediately went down. Just hoping the performance returns to “those days of yesteryear”.

Josh
Josh
Irregular
March 19, 2018 10:33 am

From a shoppers perspective, we have Big Lots, Ollie’s, Dollar General, and Family Dollar in my local town.

To me, Big Lots is usually more expensive than Walmart for many of the items we buy. We personally like Ollie’s more between BL and Ollies, because they have slightly better prices and a wider product selection.

Comparing Dollar General to Big Lots, I prefer DG more because the prices are usually better.

Maybe BL is a good value play once they right the ship, but my shopper sentiment gets in my way to invest in them at the moment.

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misterht
misterht
Guest
March 19, 2018 11:29 am

“Hillary trumpeting” according to Travis..

Dave S.
Dave S.
Member
March 19, 2018 12:11 pm

Looks like a BIG falling knife to me. No thanks for now.

Hoops
Hoops
Member
March 20, 2018 12:58 pm

Travis have you, or anyone reading this, know anything about a teaser from Ian Wyatt ( Wyatt Investment Research ) about a new CBD drug that’s going to replace OxyContin for pain without the side effects attributed to it. He claims there is a $2.00, or less a share, stock that can be had that will be going TTTTRRRazy. Thinkolater’s thoughts please. Love your letter and gumshoeing!! Thanks

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sunshine on the water
sunshine on the water
Irregular
Reply to  Hoops
March 25, 2018 2:04 am

Hello @Hoops & All,
Ian Wyatt is teasing Emblem. However, please read this short article…I’m selling, turned off by prior actions of leadership.

http://www.theglobeandmail.com/news/national/leadership-behind-canadian-medical-marijuana-company-has-an-oxycontin-past/article33200287/

“Emblem is now seeking to promote cannabis as an alternative to prescription painkillers – and profit from the opioid crisis Purdue was instrumental in creating.” Up until I read this article, I held a moderate stake in Emblem but don’t like Mr Stewart’s previous involvement in repudiating the damaging effects and addictiveness of Oxycotin.
With his new company and personal $1M stake, he stands to profit even more from the opiod problem he helped create…. 🙁

It’s down fyi as are all pot stocks Wyatt recommended. Though Cronos was up 190% from when I got it in in December. Of course I didn’t sell at that high and sold after a tumble but still nice profit. All the penny stocks got hit 25-35% with early Feb correction and have been quite sluggish in their recovery. Good time to buy for some while those of us who already agreed to the penny weed stock rollercoaster are still dizzy from the bumpy ride…

Disclosures:
Ex-long $EMMBF

Ex-supporter of Wyatt Research…
cancelling my Andy Crowder Options (annoying too frequent pitches for “Options Alliance”, “High Yield Trader” and Options Advantage”? That’s Andy Crowder and Ian Wyatt.
What’s sealing their coffin is a tough max loss last week and no response to my email and several phone calls for assistance as I watched it move against me. Perhaps there was no recourse, but for $1500 I expect a reply and a bit of guidance! Increasing Agora-style constant pitching and more attention and new bonus offers to prospective members instead of the already roped in members.
Inconsistent and not enough amounts of information in Trade instructions. For example, their most recent Options trade omitted even the probability of success on the trade as well as any explanation of whether this trade was good if your outlook was bullish, bearish or neutral.

So I’m sad to report… as SharkTankers deadpan, “I’m OUT!”
I’ll also share if they refuse me a refund. First customer service rep sad flatly no refunds.

I was REEEally excited to learn to trade Options but Wyatt/Andy Crowder was not good for a beginner. If others have a recommendation for a good trustworthy options service for beginners, conservative with a trustworthy solid track record..I’m all ears.
Thanks!
sunshine on the water

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Hoops
Hoops
Member
Reply to  sunshine on the water
March 26, 2018 10:12 am

SOTW thanks for the info I agree am also into Cronos and continue to hold, for now. Have afew other Canadian MJ stocks too, not comfortable with US MJ stocks though. Thanks again, hopefully the thinkolator will provide all with more info.

bettereagle
bettereagle
Irregular
February 13, 2020 5:30 pm

The best value stock I know and own is Noble Midstream Partners (NBLX). It currently sells at 6.6X 2020 est. PE, PEG ratio 0.73, and dividend yield 12.9%. EBITDA expected to grow from $255MM in 2019 to 300MM in 2020. Distributable cash flow expected to grow from $149MM in 2019 to $325MM Capital expenditures expected to grow from$149MM in 2019 to $190 MM in 2020. The company sees increases of 10% per year of cash distributions to shareholders. Their contracts with customers are averaging 8 years in duration. The main reason the stock is down is because of a shelf offering of partnership units of existing unitholders. Those unitholders received their stock by exercising options from the buyback of IDR’s making NBLX an independent company. I would wait until that offering is announced and buy NBLX on the bargain bin, likely lower than today’s price. There is an analyst that cites political risks in Colorado if an anti-fracking law gets passed. This is very old news. There have bills to end fracking in Colorado for many years and they all have failed. There is also a universal ban on all fracking in the United States sponsored by Bernie Sanders. No chance this bill will be passed by the senate. However, if Bernie wins the presidency, things could get hot for frackers if the democrats win both houses. But note that in Bernie’s current bill the fracking ban begins in 2025 after the next president’s term. It looks like a political football bill to me. The midstream companies are in consolidation mode and at these prices, NBLX makes a good takeover target.

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lululu3
lululu3
Irregular
Reply to  bettereagle
February 14, 2020 10:30 am

Is NBLX an MLP?